Your Top Questions About Social Security Answered

Social Security provides reliable income payments to millions of retirees. But the program can be easily misunderstood, thanks to some complex rules that govern how you qualify and what factors affect benefits for you and your family members. Before you build any Social Security assumptions into your retirement plan, make sure you have the facts straight. You can start with this list of nine common Social Security questions, answered.

1. How do I qualify for Social Security benefits? 

You qualify for Social Security benefits by working and paying Social Security taxes. Those taxes are part of FICA, a line item you should see on your paystub. The FICA tax rate charged to you is 7.65%, and that’s 6.5% for Social Security and 1.45% for Medicare. You only pay the Social Security portion of that tax on wage income up an annual limit, which changes every year. In 2020, that limit is $137,700. 

For each year you work and pay Social Security taxes, you earn four credits towards your future benefit. When you reach 40 credits, equivalent to 10 years of work, you are eligible to receive Social Security payments. 

2. When to apply for Social Security? 

You can claim your Social Security benefit as early as age 62 or as late as age 70. The earlier you start receiving benefits, however, the smaller your monthly payment will be. This is because the benefit formula is designed to pay you the same lifetime amount, no matter when your payments begin. So, if you claim Social Security at age 62, you get a longer stream of smaller payments; claim at age 70 and you get a shorter stream of larger payments. 

Sometime between the age of 62 and 70, you’ll reach what Social Security calls Full Retirement Age or FRA. Your FRA is based on your birth year, as shown in the table below. 

Table data source: Social Security

Although you can apply for Social Security before FRA, there are two primary reasons not to. First, by waiting until FRA to claim Social Security, you’ll qualify for the full amount earned based on your income — rather than a reduced amount for claiming early. As well, once you reach FRA, you can work and receive Social Security at the same time, without any reduction in benefits. Claim Social Security before FRA, though, and you are subject to an annual income cap. If your wage income exceeds the cap, your benefit is reduced. 

3. How much will I get from Social Security? 

On average, Social Security replaces about 40% of your working income — assuming you wait until your FRA to claim your benefit. Lower income individuals may get more than 40% and higher income workers may get less.

You can get a personalized estimate of your future benefit by creating an account at my Social Security. Once you log in, you can view estimates of your benefit at three different claiming ages: 62, FRA, and 70. You can also review your earnings history and use a calculator to project your benefits based on future income increases. 

4. Can I collect Social Security while I’m still working? 

You can collect Social Security while you are working, but if you haven’t reached FRA, you might see a temporary reduction in your benefit. There are two formulas for reducing your benefit, depending on your age relative to FRA. 

1. In the years before you reach FRA, your benefit is reduced by $1 for every $2 you earn above the annual income cap. In 2020, that cap is $18,240. 
2. In the year you reach FRA, your benefit is reduced by $1 for every $3 you earn above a different, higher income cap. That cap in 2020 is $48,600.  

If you do see a reduction because of your income, Social Security will recalculate your benefit at FRA to give you credit for the months your benefit was reduced.

Once you reach FRA, the income caps go away. You can earn as much as you want and it won’t affect your Social Security benefit at all.

5. At what age is Social Security no longer taxed? 

The taxation of Social Security benefits is a function of income and not age. Specifically, you’ll owe federal taxes on your Social Security benefits when your combined income is more than $25,000 for single filers or more than $32,000 for married filers. That rule applies at any age. Combined income is equal to your adjusted gross income plus nontaxable interest plus half of your Social Security income. 

Single filers who make between $25,000 and $34,000 in combined income annually generally pay income tax on 50% of their Social Security benefit. The same is true for married filers whose annual combined income is between $32,000 and $44,000. Above those ranges, 85% of the benefit is usually taxable. 

6. Which states do not tax Social Security? 

Thirty-seven U.S. states do not tax Social Security benefits at all. These are shown in the table below. 

Said another way, the following 13 states do tax Social Security benefits: 

7. What percent of Social Security does a divorced spouse get? 

A divorced spouse who’s eligible may receive up to 50% of your Social Security benefit. If you pass away, that percentage can be as high as 100%. 

There are some tricky rules that define eligibility, however. The marriage needs to have lasted at least 10 years and the divorced spouse needs to be 62 or older and unmarried. As well, when an ex-spouse claims against your benefit, Social Security will check the benefits available under the spouse’s work history first. If your record equates to a higher benefit for your ex, Social Security adjusts the ex’s benefit up to match that higher amount. 

Note that an ex-spouse will get less than 50% of your benefit if he or she claims before FRA. Any wage income earned by the ex before FRA in excess of the income cap would also reduce his or her benefit. 

Whatever the amount is, those Social Security payments to your ex-spouse do not affect your benefits or the benefits available to your current spouse. 

8. When a spouse dies, does the husband/wife get their Social Security? 

When a spouse dies, the surviving husband or wife may qualify for up to 100% of the deceased’s Social Security benefit. The exact percentage is determined by the age of the surviving spouse and whether there are dependents. Widows or widowers who’ve reached FRA may qualify for the deceased’s full benefit, for example. But surviving spouses between the ages of 60 and FRA will get a reduced amount, somewhere between 71.5% and 99% of the deceased’s benefit. If the widow or widower is caring for a child under the age of 16, he or she may qualify for 75% of the deceased’s benefit at any age. 

9. How long will Social Security last? 

The latest projections indicate that Social Security can continue to pay full benefits until 2034. If no changes are made to the program before then, benefits won’t go away overnight — but they may have to be reduced by an estimated 24%. 

The issue at hand is a changing population. Social Security gets its income from payroll taxes and uses that income to fund benefits to the current generation of retirees. In the past, the working population has been able to support retiree benefits — often with a surplus at year-end. That surplus goes into a trust fund that’s earmarked for Social Security. 

Over the next decade, however, millions of Baby Boomers will be shifting out of the workforce and into retirement. That will lower Social Security’s income and raise its expenses at the same time. Thanks to the surplus of funds from prior years, Social Security can continue on temporarily even when expenses are higher than income. But once the surplus runs out, which is expected to happen in 2034, Social Security won’t have the resources to pay out more than it’s bringing in. 

Having said all that, it’s unlikely that legislators and politicians will let the surplus run out and be forced to cut benefits. A recent analysis concluded that Social Security benefits keep nearly 22 million people in the U.S. out of poverty. Even a small benefit reduction would be very difficult to absorb for millions who rely on Social Security as their primary source of retirement income. 

Next steps for Social Security planning 

Your next Social Security planning action should be to create an account at my Social Security. Review your earnings history for accuracy and project your benefit at your targeted retirement age. You can also use the benefit estimator to see how an increase in your income or a different retirement date would change your benefit amount. That information may motivate you to go after that promotion at work or, possibly, to change the timing of your retirement plan.